SP Angel Morning View -Today’s Market View, Friday 26th January 2023

China hints at more stimulus in boost to metal demand prospects

MiFID II exempt information – see disclaimer below

Arc Minerals* (ARCM LN) – Assay results from scout drilling at Virgo in Botswana

Arkle Resources* (ARK LN) – Exploration results from Aughrim

Geothermal Engineering Limited (Private) – Geothermal Engineering begins construction at site in Cornwall

Orosur Mining* (OMI LN) – Expanding its exploration in Nigeria and Uruguay

Phoenix Copper* (PXC LN) – Raising £2.2m to purchase equipment at a discount

China hints at more stimulus in boost to metal demand prospects

• China revealed broad guidelines overnight to provide targeted stimulus to various sectors considered of national importance.
• The PBoC suggests that surprise cuts, like Wednesdays, will become less frequent.
• However, credit will be provided to sectors struggling under specific pressures.
• Xi Jinping’s China is under increasing strain economically, as the housing market continues to deflate and growth disappoints.
• $279bn is being provided to agriculture and small firms in the form of low cost financing.
• We remain wary whether metals demand will see a sustained pick up in demand from such measures but they do provide investors with more confidence in Beijing.
• The market remains wary of the potential for further financial collapse following the Zhongzhi bankruptcy and liquidation with >$36,4bn of estimated net debt

• New car sales are expected to rise 3% yoy to around 31m units following sales of 2.2m vehicles in January.
• EV sales pulled back 15% mom to around 800,000 vehicles though figures are distorted by China’s emergence from its harsh Lockdown in January 2023 following a series of riots and factory breakouts in the preceding months.
• Fitch Ratings review published today show Q4 promotions and deep discounting last year boosted year-end sales by 5.3% yoy.
• EV sales rise 35.7% in 2023 from 27.6% a year earlier lifted by an 83% rise in in PHEVs while battery EV sales slowed 21% last year.

Further stimulus for urban renewal means >100 cities are now eligible for new economic housing development.

• Chengdu–Chongqing economic circle achieved a regional GDP of CNY5.9tn in first nine months of the year with Chongqing recording GDP of >CNY3tn for the full year.
• The cities are co-building a Belt and Road Cooperation Zone for Science, Technology and Innovation allowing with other plans covering CNY3.6bn for infrastructure and property development this year following on similar expenditure in H1 last year.

Metals rally fades as market remains sceptical over China stimulus effectiveness

• Copper has cooled from recent highs, holding around the $8,550/t mark.
• Iron ore remains strong at $135/t, despite expectations of a 4.4% increase in supply this quarter.
• The yangshan refined copper premium has fallen to its lowest point since September, as import demand remains weak from Chinese buyers
• Nickel has strengthened slightly to $16,785/t, having fallen close to 50% yoy amid a flood of Indonesian supply.

Gold prices steady as traders hold off on further Fed rate cut wagers

• Gold prices are hovering around $2,020/oz, a key level amid limited bond market direction.
• Treasuries were volatile yesterday following a series of data drops, in which GDP growth beat expectations and inflation continued to slide below the Fed’s target.
• The 10-year yield fell from 4.2% yesterday to 4.09% this morning, presenting a complicated picture for gold traders.
• The dollar strengthened to near one week highs this morning, before cooling against a basket of currencies.
• Traders currently see a 50/50 chance of a March rate cut, which have increased from 43% last week but remain well below over 80% cut expectations at the beginning of January.

Product tanker rates jump over $100k/day in threat to diesel prices

• Product tankers are seeing shipping rates soar following a mass rerouting away from the Red Sea.
• Rates from Middle East to Japan jumped 3% last night, highest level since 2020.
• Houthi attacks continue and shipping groups are struggling to insure vessels.
• Product tankers ship gasoline, naptha and diesel among other products.

Currencies

US$1.0829/eur vs 1.0887/eur previous. Yen 147.83/$ vs 147.78/$. SAr 18.920/$ vs 18.910/$. $1.269/gbp vs $1.272/gbp. 0.658/aud vs         0.657/aud.CNY 7.181/$ vs         7.167/$.

Dollar Index 103.61 vs 103.26 previous.

Commodity News

Precious metals:

Gold US$2,021/oz vs US$2,013/oz previous

Gold ETFs 84.2moz vs 84.3moz previous

Platinum US$895/oz vs US$902/oz previous

Palladium US$932/oz vs US$960/oz previous

Silver US$22.87/oz vs US$23/oz previous

Rhodium US$4,550/oz vs US$4,550/oz previous

Base metals:

Copper US$ 8,513/t vs US$8,542/t previous

Aluminium US$ 2,245/t vs US$2,218/t previous

Nickel US$ 16,670/t vs US$16,535/t previous

Zinc US$ 2,579/t vs US$2,586/t previous

Lead US$ 2,137/t vs US$2,150/t previous

Tin US$ 26,650/t vs US$26,610/t previous

Energy:

Oil US$82.1/bbl vs US$80.5/bbl previous

Natural Gas €26.8/MWh vs €29.2/MWh previous

• US natural gas prices fell even as the EIA storage report detailed a massive 326bcf w/w draw to 2,746bcf after last week’s big freeze, dropping storage levels to 4% above last year and 5.2% above the 5-year average.

Uranium Futures $101.0/lb vs $103.9/lb previous

Bulk:

Iron Ore 62% Fe Spot (cfr Tianjin) US$135.5/t vs US$135.3/t

Chinese steel rebar 25mm US$572.6/t vs US$573.8/t

Thermal coal (1st year forward cif ARA) US$94.0/t vs US$95.3/t

Thermal coal swap Australia FOB US$121.0/t vs US$121.8/t

Coking coal swap Australia FOB US$324.0/t vs US$324.0/t

Other:

Cobalt LME 3m US$29,135/t vs US$29,135/t

NdPr Rare Earth Oxide (China) US$55,563/t vs US$55,951/t

Lithium carbonate 99% (China) US$12,046/t vs US$12,069/t

China Spodumene Li2O 6%min CIF US$1,000/t vs US$1,000/t

Ferro-Manganese European Mn78% min US$1,056/t vs US$1,062/t

China Tungsten APT 88.5% FOB US$305/mtu vs US$305/mtu

China Graphite Flake -194 FOB US$590/t vs US$590/t

Europe Vanadium Pentoxide 98% 5.8/lb vs US$5.9/lb

Europe Ferro-Vanadium 80% 29.05/kg vs US$28.75/kg

China Ilmenite Concentrate TiO2 US$317/t vs US$317/t

Spot CO2 Emissions EUA Price US$67.6/t vs US$69.3/t

Brazil Potash CFR Granular Spot US$295.0/t vs US$295.0/t

Battery News

Amara Raja’s first gigafactory to begin commercial production by 2025 end

• The company, one of India’s leading energy storage companies, will start commercial production of lithium-ion batteries in the next 2 years.
• President of Amara Raja, Vijayanand Samudrala, announced the plans at the India Battery Manufacturing and Supply Chain Summit.
• ‘We will have 3-4 individual factory buildings, dealing with two chemistries, both NMC as well as LFP, and two formats, cylindrical as well as prismatic,’ Samudrala said.
• He also revealed that Amara Raja is aiming for 16GWh of li-ion cell capacity from its gigafactories.

EVs struggle through severe weather across the US

• Over the last couple of weeks, parts of the US have experienced severe weather, with arctic temperatures and snowstorms causing chaos across much of the country.
• The weather has also caused difficulties for EV owners who are experiencing fast-draining batteries, slower charging, and long queues for public charging points as a result.
• Range anxiety and longevity of EV batteries remain a sticking point for sales and the cold snap in the US has added fuel to the fire.
• A Norwegian breakdown service revealed that it has responded to more assistance requests from combustion-engine vehicles than EVs during the extreme cold weather that Scandinavia has experienced at the start of 2024.
• Of the 34,000 calls it has responded to, only 13% have been for EVs, despite Norway having an EV share of 24%.
• Harvard Researchers reported earlier this month that it had made a breakthrough with a new solid-state battery that outperforms other solid-state batteries
  • The battery retained 80% capacity after 6000 cycles and performed well at low temperatures
  • As opposed to traditional li-ion batteries, solid-state batteries replace the liquid electrolyte with a solid material like ceramic.
  • It is also believed that this sort of battery could have a battery lifetime of ~30-years which could dramatically reduce EV costs.

CATL and CMOC consortium win $1bn bid for Bolivian lithium plant

• State group YLB has awarded a consortium including CATL and CMOC a contract to develop a DLE plant in Bolivia.
• Plants will be built in the Salar de Uyuni and Salar de Coipasa.
• Direct Lithium Extraction remains difficult at commercial scale, although Bolivia holds rich and large resource of lithium in brine.
• Bolivian brines are high in impurities, specifically magnesium, making commercial production unviable to date.
• Eight companies had been brought in to test the brines for potential processing, with the CBC consortium be selected this week.
• The Group is aiming to produce 25kt battery-grade LCE by 2024 before ramping up to 100kt by 2028.
• Chile is also exploring DLE options as its president Boric puts pressure on producer SQM to limit water usage.
• CATL is CMOC’s second largest shareholder.
• We suspect the deal will see significant technical and operational difficulties, partly down to naturally occurring concentrations of magnesium which needs to be removed in the process.

Company News

Arc Minerals* (ARCM LN) 2.77p, Mkt Cap £34m – Assay results from scout drilling at Virgo in Botswana

(Arc holds 75% in Alvis-Crest (Proprietary) Limited which holds two licenses in the Kalahari Copper Belt, known as Virgo covering >210km2, around 10km south east the recently commissioned Khoemacau Copper in Botswana)

• Arc Minerals have released assays from drilling started in August 2022 on the Virgo Project in Botswana on the Central Structural Corridor of the KCB ‘Kalahari Copper Belt’.
• The licenses which were acquired in 2021 previously showed two copper-nickel soil anomalies over 3km and 2.5km on PL 135/2017 overlying an interpreted contact between Ngwako Pan and D’Kar Formations prospective in Cu-Ag mineralisation.
• Arc report the return of a 1m intersection grading up to 3.65% Cu and 24 g/t Ag at 25-26m down hole assayed in an individual samples while confirming interpreted Ngwako Pan / D’Kar contacts.
• A Reverse Circulation drill hole also intersected 1m grading 2.05% Cu and 58 g/t Ag at 85m-86m down hole.
• Each drill hole was spaced >1km between profiles.
• The PL135/2017 license is located towards the south-eastern margin of the KCB surrounded on three sides by prospecting licenses held by the Khoemacau Copper Mining Limited
• The license is reported by Arc to occupying a similar geological setting to that recently drilled by Khoemacau at their recent Mawana Fold Discovery and the Zone 9 exploration target.
• Further work: management are considering a ground-based IP ‘Induced Polarisation’ survey to better direct the drilling which may give some clues as the potential shape and extent of potentially mineralised structures below the sand.
• See map for the location of the 210km2 of Virgo licenses on the KCB trend: http://www.rns-pdf.londonstockexchange.com/rns/3027T_1-2021-3-24.pdf
• Zambia: Management also report their latest round of drilling in Zambia where they have had two rig running. This drill program will be finalised over next few weeks.
• Arc recently reported the completion of their joint venture agreement with Anglo American with satisfaction of the final conditions precedent with Anglo American paying US$3.5m in cash to Unico Minerals which is 67% owned by Arc.

Conclusion:  While 1m wide intersections are not going to make a mine, the intersections are relatively shallow and show the lithological boundary remains mineralised. The proposed IP survey may identify more favourable areas to follow up.

*SP Angel acts as Nomad and broker to Arc Minerals. An SP Angel analyst has visited Arc’s licenses in Zambia to the West of Solwezi.

Arkle Resources* (ARK LN) 0.49p, Mkt Cap £2.3m – Exploration results from Aughrim

• Arkle Resources provides results from its recent exploration campaign at the Aughrim licence in Ireland.
• The Company has identified anomalous lithium oxide results from rock chip sampling, with 26/59 samples showing concentrations over 0.02% Li2O.
• Spodumene was noted, however this constituted less than 1% of total rock mineralogy.
• The Company also noted the presence of beryllium, tin and tungsten at the Ballinglen area.
• Rock chip sampling at the Kingston historic copper site returned promising copper results of 0.39% Cu.
• Anomalous gold grades were also reported within the target quartz vein float.
• Additionally, samples returned evidence of cerium and dysprosium.
• Going forward, Arkle plans additional geochemical work and continues to see prospectivity in the licence block.

*SP Angel are Nomad and Broker to Arkle Resources

Geothermal Engineering Limited (Private) – Geothermal Engineering begins construction at site in Cornwall

• Geothermal Engineering Limited (GEL) has started construction work at the United Downs on its geothermal power and lithium extraction plants.
• The site will be the first geothermal power plant in the UK and the company expect power production to begin in Q4 ’24.
• GEL want 25MW of baseload electricity and 100MWh of heat energy by 2028, enough power and heat for 70,000 homes.
• GEL also revealed that the geothermal fluid within the wells at the United Downs site has one of the highest concentrations of lithium across Europe.
• It aims to produce 100tpa off Lithium Carbonate Equivalent starting in late 2024/early 2025.

Orosur Mining* (OMI LN) 3.95p, Mkt Cap £8.0m – Expanding its exploration in Nigeria and Uruguay

• In its results for the 3 and 6 months ending 30^th November 2023 published today, Orosur Mining reports a loss of US$0.26m for the quarter and of US$0.87m for the half year as well as a closing 30^th November cash balance of US$2.1m and current balance of US$1.7m.
• Describing operational highlights, the company explains that in Colombia “whilst exploration activities have been wound back during the Period, some mapping and surface sampling were undertaken largely to meet the regulatory work requirements of the licences” while it is continuing discussions with Monte Aguila to explore “options whereby Orosur would acquire MMA’s interest in the Anza Project”.
• Cautioning that it may take some time to secure an agreement and that such an outcome cannot be guaranteed, Orosur says that, if successful, it would return to “having a direct or indirect interest of 100% in the Anza Project”.
• In Brazil, exploration of the Ariquemes district is now targeting prospects at Oriente Novo, east of its tenements and at “Paraiso in the west and to the north of the Bom Futuro tin mine”.
• Operations in Argentina “sampling and ground magnetic surveys recommenced after the winter recess in September with the plan of completing coverage of the highest priority parts of the project before more detailed work could be commenced with a view to defining drill targets”.
• This work is “near completion, and field teams will be returning to project early in 2024”.
• “In Uruguay, the Company’s wholly owned subsidiary, Loryser, continues to focus its activities on the final stages of the Creditors Agreement” with all of Loryser’s assets now sold and settlements paid to the former employees.
• Loryser has also “finalised the reclamation and remediation works on the tailings dam and has successfully concluded a one-year post-closure control phase … [and] … is well advanced in distributing the proceeds to Loryser’s trade creditors”.
• Exploration in Nigeria has generated “positive results from an initial mapping and sampling program that was carried out on the Lithium Project” with mapping identifying extensive pegmatite systems “over substantial strike lengths of several km’s and of varying widths from sub-metre, to over 30m in one massive example”.
• Pegmatite samples taken during the Nigerian mapping “returned high levels of lithium, with several over 2% Li₂O” and the company has secured “two new exploration licences in Nigeria taking the total area of prospective land under title to 533km²”.

Conclusion: Orosur is expanding its exploration in Nigeria and in Argentina while negotiating for full ownership of the Anza project in Colombia and working towards the conclusion of its legacy obligations in Uruguay.

*SP Angel acts as Nomad and Broker to Orosur Mining

Phoenix Copper* (PXC LN) 11.25p, Mkt Cap £17.2m – Raising £2.2m to purchase equipment at a discount

Phoenix holds 80% of the Empire mining property in Idaho)

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• Phoenix Copper reports that it is raising £2.2m to fund the purchase of mining and processing equipment available at “a substantial discount to new value” for its Empire open-pit copper mining project in the Alder Creek mining district of Idaho.
• Shares are to be priced at 11.5p/share implying the issue of around an additional 19.1m shares.
• Some directors, Advisory Board members and “certain other investors” are subscribing for £1m of the shares with a further £1.2m to be placed “by way of an accelerated bookbuild”.
• Eligible retail investors are offered “up to £0.2 million … to provide existing retail investors in the UK with an opportunity to participate in the Fundraise”.
• The company explains that its pre-feasibility study (PFS) for the development of the “Empire Open-Pit Mine is nearing completion and, barring any unforeseen delays, is anticipated for delivery to the Company by late Q1 2024 or early Q2 2024”.
• Phoenix Copper says that in the course of developing the PFS and estimating the capital required for the project it “has been given an opportunity to purchase certain equipment in good operating condition at a significant discount to the price of that equipment when new. If it completes, this purchase should give the Company a significant capex reduction and the Directors anticipate it will have a material impact on the PFS economic analysis, as well as reducing the time required to purchase certain long lead-time items”.
• The announcement describes the items to be purchased as including “a grinding circuit and related components, including spare parts”.
• The company confirms that, in addition to the fund-raising announced today it “remains in advanced discussions on its … [previously announced] … proposed corporate copper bond financing and remains in negotiations with the lender to roll the Company’s existing short-term loan facility into a new and larger facility before the repayment date of 23 March 2024”.
• In our opinion, Phoenix Copper is acting opportunistically to secure equipment at a discount which, in addition to reducing the capital required to develop its Empire project, provides scope to condense the timetable for project development by eliminating the lead-times to deliver new equipment which should enhance the economic viability of the project and mitigate the risk to the project timetable.
• Purchase of this equipment may, however, not include manufacturer’s warranties and Phoenix Copper’s engineers will need to be rigorous in ensuring the condition of the various components and supervising its installation.

Conclusion: The additional funding announced today gives the company an opportunity to reduce the capital required for its Idaho project in tandem with a possible reduction in the timetable.  We await the outcome of both the PFS and of the copper bond financing with interest

*SP Angel acts as nomad to Phoenix Copper

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The SP Angel team also ranked 1st in Palladium, 3rd in Tin and 5th in Silver in the fourth quarter of 2020

Analysts

John Meyer – John.Meyer@spangel.co.uk – 0203 470 0490

Simon Beardsmore – Simon.Beardsmore@spangel.co.uk – 0203 470 0484

Sergey Raevskiy –Sergey.Raevskiy@spangel.co.uk – 0203 470 0474

Sales

Richard Parlons –Richard.Parlons@spangel.co.uk – 0203 470 0472

Abigail Wayne – Abigail.Wayne@spangel.co.uk – 0203 470 0534

Rob Rees – Rob.Rees@spangel.co.uk – 0203 470 0535

Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471

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*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)

+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

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